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LILA - Liberty Global Latin America tracker


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http://www.benzinga.com/analyst-ratings/analyst-color/15/08/5727430/is-the-liberty-lilac-spin-off-worth-investing-in

 

"According to the Morgan Stanley report, “Management has stated that there is a long list of potential M&A candidates with a combined EBITDA opportunity of more than five times LiLAC's current size.

 

Equal-Weight For Now

 

However, the analyst believes that this positive outlook is already priced into the stock. While Liberty Global is a compelling long-term growth story, local organic FX growth is expected to slow down sharply in 2015-2016 to the mid-single digits, due to tougher competition in Chile, more difficult comps and the weaker Puerto Rico macro environment."

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  • Added 43,000 organic RGUs and increased customer relationships by 14,000 in Q2
  • Delivered Q2 rebased revenue growth of 7%, our best quarterly result in two years
  • Rebased OCF up 13% to $128 million in Q2, resulting in margin expansion of 240 bps to 41%
  • Chile and Puerto Rico with Q2 rebased OCF growth of 14% and 12%, respectively

 

That operating leverage is kicking in.

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How is debt handled for tracking stocks? Are they borrowed and guaranteed under the Liberty Global parent as EURO currencies?

I am trying to figure out how the debt issue will be impacted by hyper inflation. Usually if they borrow the local currency and there is hyper inflation and they are able to pass the costs to clients, the real debt is actually decreasing quickly.

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How is debt handled for tracking stocks? Are they borrowed and guaranteed under the Liberty Global parent as EURO currencies?

I am trying to figure out how the debt issue will be impacted by hyper inflation. Usually if they borrow the local currency and there is hyper inflation and they are able to pass the costs to clients, the real debt is actually decreasing quickly.

 

Hyper inflation will be followed by contagion and sovereign defaults. We have been to this movie before. Doesn't this bother you more?

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Here is my chicken scratch after going through the 10q.

 

I have 12.5M lila class A, 0.5M class B and 30M class C shares.  I have no idea what the share price of C shares is, the A is $42 and the B is $43  so roughly $1.8B mcap right there which is much higher than yahoo finance.  Still it's a new stock with a complicated structure so can anyone confirm the market cap?

 

Adjusted OIBDA % is around 41% while closer to 50% in Europe.  Not sure if that same ratio is possible here but given that it was at 39% last year likely they are not done yet.  OIBDA was $125m and $238m for last quarter and last 6 months.

 

I have $145M in debt payments, $220M in capex & $35m for derivatives in 2016.  So if OIBDA comes in at $500m, that is about $100m in FCF?  Maybe I am missing something else..

 

The 7.5% growth rate is organic (which is good) but net growth was only around 2%.  Not an issue by any means as margins are improving but just for clarity.

 

They attribute only $1.3M of share compensation expense to LILAC, $55M to global.  I think the rest of management expense would show under SG&A.

 

Regarding the debt they hold the Chilean debt local I think but have an currency thing (collar?) to compensate them if currency moves against them.  Chile is a pretty stable country too, I don't see hyper inflation as a risk.  Puerto Rico uses USD from my understanding, the debt is in USD there.

 

There is more but I don't feel like typing.  Honestly it looks attractive to me right now but then I am fairly easily sold when Malone is involved.  I will need to think about it for a week or so.  Interested to see other's opinions.  In particular I wonder what other's think of the valuation. 

 

Does anyone know Malone's stake in the company?

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Here is my chicken scratch after going through the 10q.

 

I have 12.5M lila class A, 0.5M class B and 30M class C shares.  I have no idea what the share price of C shares is, the A is $42 and the B is $43  so roughly $1.8B mcap right there which is much higher than yahoo finance.  Still it's a new stock with a complicated structure so can anyone confirm the market cap?

 

B is the OTC LILAB while C is LILAK...  All about the same anyhow.

 

 

 

 

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How is debt handled for tracking stocks? Are they borrowed and guaranteed under the Liberty Global parent as EURO currencies?

I am trying to figure out how the debt issue will be impacted by hyper inflation. Usually if they borrow the local currency and there is hyper inflation and they are able to pass the costs to clients, the real debt is actually decreasing quickly.

 

Hyper inflation will be followed by contagion and sovereign defaults. We have been to this movie before. Doesn't this bother you more?

 

http://www.tradingeconomics.com/chile/government-debt-to-gdp

 

The debt to gdp ratio seems very low to me.

 

http://www.reuters.com/article/2014/12/04/chile-bonds-finmin-idUSL2N0TN1YS20141204

"Dec 3 (Reuters) - Chile raised $2 billion via a double bond placement on Wednesday, which Finance Minister Alberto Arenas said was the country's biggest sovereign issue since it returned to democracy and international debt markets in 1990."

 

Seems like it was blocked from international debt market since 1990. Therefore most of its current government debt is local. Therefore inflation actually helps more than hurt.

I think there is a possibility to have the classic boom-bust cycle. They just got access to international debt market. They can borrow money to boost their economy. Then GDP grows, making the debt to GDP ratio low. Therefore they can borrow more...... Eventually the cycle will go into the other direction, but right now since they just got international debt access, it should be in the early stages of the boom bust cycle.

 

Another question for all of you who likes LILA, could you please let me know why you think LILA is cheap?

"Giving pro forma effect to the OCF impact of the Choice transaction, the LiLAC Group ended Q2 2015 with adjusted gross and net leverage ratios of 3.9x and 3.5x, respectively. These ratios take into account the impact of a cross-currency derivative that synthetically swaps VTR Finance B.V.'s $1.4 billion debt into CLP 760.3 billion."

 

What does this mean? Does this mean they hedged the currency risk for their debt?

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muscleman,

 

You really should read the 10-q if you want to know the details, it is all in there somewhere.  My take is that the chilean debt is in USD but if you look they have derivatives that offset currency risk.

 

I don't think it is crazy cheap but at something like 16-17x fcf there is very little growth priced in.

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Why are you focusing on FCF? In my opinion, this is the wrong metric for a cable co with such a strong growth perspective. You should focus on EBITDA because LILA is going to put most of its cash directly into growth capex. This is low FCF by choice.

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Ni-co, I agree. :)  But the beauty of the valuation is that you can justify it, I think, based on fcf even if you assume prior capex has been all maintenance.  I think you are getting growth for free.  I suspect this might be the case because the assets are in countries that scare investors and perhaps for good reason.

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You are not getting growth for free at these FCF multiples. You're paying roughly 30x FCF / share at these prices. There is a significant M&A premium embedded into the stock. I think it's kind of crazy to put meaningful sums of money to work without truly understanding what you're investing in or how much FCF an asset actually produces.

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You are not getting growth for free at these FCF multiples. You're paying roughly 30x FCF / share at these prices. There is a significant M&A premium embedded into the stock. I think it's kind of crazy to put meaningful sums of money to work without truly understanding what you're investing in or how much FCF an asset actually produces.

 

FCF is about at a $4/share run rate once you normalize for maintenance capex and their FX hedging. If you don't believe the FX swings won't stabilize over the next 15-20yrs then this isn't something to be in.

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I'm at roughly $1.40 of FCF / share. Chile EBITDA: $330, 60% of Puerto Rico EBITDA: $120, Chile + 60% of Puerto Rico Capex: $200, Interest Expense: $150, Corporate Expense: $8.5mm, Share Based Comp: $5, Cash Taxes: $40mm. Gets you to roughly $55mm or $1.40 in FCF / share.

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Does anyone have an explanation as to why LILAK trades at a premium to LILA? Seems all the other Liberty tracking stocks have an inverse relationship between voting and non-voting stock.

 

More liquidity?

 

I converted to LILA from LILAK (also means I have 1 position less on the screen)

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